Reserve Bank of Australia Board Keeps Status Quo

September 2, 2014

Australia kicked off this week’s parade of central bank meetings with the widely predicted decision of retaining a record low 2.5% Official Cash Rate and signaling that this level likely will continue for a period of time.  A statement of explanation reiterates that monetary policy is accommodative yet appropriate “to foster sustainable growth in demand and inflation outcomes consistent with the target” of 2-3% over the coming two years.  Moderate growth of slightly less than trend is predicted, and weak wage pressure is cited as a factor that will keep inflation subdued.  Like other recent statements from the RBA, this one protests the strength of the Aussie dollar, which “remains above most estimates of its fundamental value, particularly given the declines in key commodity prices. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.”  The baseline forecast assumes that the A$ depreciates, and an implication if that fails to happen is that a further interest rate cut is more likely during the next couple of quarters than a hike. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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